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The Great Degeneration: How Institutions Decay and Economies Die

Is the West in terminal decline? Niall Ferguson argues that, less than 25 years after the end of the Cold War and the apparent triumph of liberal democracy and the free market, the economic and political supremacy of Western Europe and North America is fading rapidly. This is, he says, because of the degeneration within Western societies of the institutions upon which that supremacy was based: representative government, the free market, the rule of law and civil society.

When the Western powers were expanding their political and economic power in the 18th century, Adam Smith wrote of the differences between the “progressive” and the “stationary” state. The progressive states were Britain and its American colonies, and it was China - a once “opulent” country - that had been “long stationary” under its centralised rule, its mandarins and its defective laws. Now it is China that has the dynamic economy with a per capita income that is rapidly catching up with that of the US, and it is expanding its geopolitical influence. Ferguson has reservations about the sustainability of China’s economic expansion as “its market reforms remain subject to an exclusive and extractive elite which continues to allocate key resources”, but he has few doubts about the decline of the West. One by one he examines the institutions that were the foundations of modern Western states and societies, and emanated largely from Britain, and finds them in a state of decay.

“England”, he writes, “was the first country to move from having ‘inclusive’ or ‘pluralistic’ rather than extractive political institutions” and to evolve a system of representative government. Such a system has the virtue of making government responsible to the people, but what happens if the people as electorate become irresponsible, not only in defiance of their own best interests but in terms of their responsibilities to future generations, and if governments acquiesce to their demands in order to placate them? The result, Ferguson argues, is massive public debt, which allows a generation of voters to live at the expense of future generations, thus breaking what Edmund Burke regarded as the fundamental social contract between the generations.

Electorates also demand security: accidents should not happen and investments should be without the risks inherent in the inevitable Darwinian nature of economic life. To this end, regulatory frameworks are devised to make life safer and either prevent or ameliorate “the mass extinctions that naturally accompany economic depressions”, which have been made more probable by the complex network of interacting components that make up the modern financial system. Is too much regulation as dangerous as too little? It is salutary, Ferguson suggests, to remember, amid calls for more regulation of finance and banking, just how much regulation there was before the present economic crisis, what little effect it had, and what little retribution there was for those who ignored it.

The desire to regulate, he argues, results in a massive increase in the number of laws, which leads not to the rule of law but to “the rule of lawyers”, exacerbated in the British instance by the decline of common law and the intrusion of “Napoleon’s revenge”, namely European civil law. In the US, which has gone furthest down this road, ubiquitous litigation and the consequent massive increase in lawyers’ fees can make the legal processes of Charles Dickens’ Bleak House seem efficient.

Dependence on an overweening state threatens what was once one of the great strengths of British and American life, civil society and the voluntary organisations of which it was composed: charities, social and cultural institutions, independent schools and universities and sporting clubs. Americans are “bowling alone” and the small social platoons are disappearing from Britain as memberships of almost every voluntary organisation and even political parties decline.

Historians often get it wrong when they turn to the present and the future, but Degeneration, based on the author’s Reith Lectures, is a compelling and cogently argued work. Ferguson contends that further degeneration can be avoided only by “heroic leadership and radical reform”. A faint hope! Perhaps, however, degeneration is the natural fate of all institutions and societies and, as W.B. Yeats wrote: “Things fall apart; the centre cannot hold.”

The Great Degeneration: How Institutions Decay and Economies Die

By Niall Ferguson

Allen Lane, 192pp, £16.99

ISBN 9781846147326

Published 17 October 2012

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